The monetary war in seventy-one seconds

James Rickards has given few days ago a very interesting interview to Mineweb Radio in South Africa.

I consider this as the best summarized description of monetary war (so called 'currency war'), albeit a very short one.

I only disagree with a point : Rickards described 3 phases in the monetary war : 1921-1936 ; 1967-1987 ; 2010-now.

In fact, the current crisis is rampant since 1967. One major event has temporarily covered up the monetary crisis: the strategic partnership between US and China, which has sustained the international role of the US dollar, but without reforming any fundamental weaknesses. The CBGA first gold agreement in 1999 was a significant sign that the monetary crisis, like a dormant virus, was still there.

The US/China monetary partnership has been broken since 2009/10, and this has unveiled a new wave of the monetary crisis.
Here are a few pictures from my Research Pages to illustrate the major trends:

Chinese exports of goods to US as a % of total Chinese exports ;

Data serie since 1985

U.S. : Velocity of M2 money stock (lhs; using GDP/M2); 

Velocity using M2 / StLouis Fed non-adjusted monetary base (rhs); 

Data series since 1959

source

Monetary war : from sovereign debt to sovereign gold

 As I wrote in "Le nerf de la guerre monétaire", behind sovereign debt, there's gold. Because the supposed-to-be-deadly Euro sovereign debt crisis is over, and the Euroland is successfully running towards much stronger integration, a new battlefield is being investigated : "Audit the gold Reserves". 

This is a very tactical game, and here are some recent developments:

• Bundesbank joins Fed in demanding secrecy for gold swaps, gata.org, Dec. 01, 2010
• Give Treasury Its Proper Role on the National Security Council, NY Times, July 23, 2012
• Where’s the gold? NY Fed undergoes first-ever audit, RT.com, August 04, 2012
• The U.S. government has been quietly carrying out an audit of all the American-owned gold at the New York Fed. The process involves drilling small holes in about ten per cent, or roughly 350, of the bars to make sure they're pure. The results will be announced towards the end of the year.
• Why America is going to win the global currency battle, FT.com, Oct. 12, 2012
• Unease about Germany's unchecked gold reserves, AP, October 22 2012
• Rechnungshof fordert Inventur der Goldreserven, Der Spiegel, October 22 2012 [english translation : German Court Demands Bundesbank Audit Sovereign Gold Holdings, ZeroHedge.com]
• The Bundesbank has supposedly decided to transfer 50 tonnes of gold held with the New York Fed to Germany over the next three years for thorough examination.
• Statement by the Deutsche Bundesbank on the accounting treatment of the gold reserves, Bundesbank, Oct 22, 2012
• Bundesbank Disagrees With Audit Court’s View on Gold Reserves, Bloomberg, Oct 23, 2012
• Gold reserves stored securely, Bundesbank, Oct 25, 2012
• The Deutsche Bundesbank’s gold holdings (as per 31 December 2011), Bundesbank, Oct 25, 2012
• Remarks on current developments in Europe, Bundesbank, Nov 1, 2012

 We, Europeans, must not be worried. We believe NY Fed when they say the german gold is there. And even if it weren't NY Fed is good for its replacement.

[This article was first updated 10/28 : add links about statements published 10/25 ; it will be further updated depending on future new important publications or press releases]

The international role of the euro remains unchanged after the last crisis : ECB review

This 11th annual review of "The international role of the euro" presents the main findings of the continued monitoring and analysis conducted by the ECB and the Eurosystem looking at the development, determinants and implications of the use of the euro by non-euro area residents. This review also examines in greater depth issues that have a bearing on the euro’s international role, the global currency order and the international monetary system (Part #1). This analysis is also  presented in the form of four special features (articles #2 to #5).

Contents:

1. Recent developments in the international use of the euro.
2. Foreigners’ appetite for euro area securities during the sovereign debt crisis.
3. The Chinese dominance hypothesis and the potential emergence of a tripolar global currency system.
4. When did the US dollar overtake the Pound Sterling as the leading international currency? The “old view” versus the “new view”.
5. Was unofficial dollarization / euroisation an amplifier of the global crisis of 2007-09 in emerging economies?
6. Statistical annex.

PDF Version :  1.64 MB (en)

ePUB Version:  10.3 MB (en)

The 4th article, based on work by Chitu, Eichengreen and Mehl, and the 3rd one, based on work by Fratzscher and Mehl, bring new details on a topic familiar to the readers of Conscience Sociale ( How to replace the world trade reference currency ? ) ;  Part 1.3 proposes updated elements to the topic covered on this page : US Dollar (and Euro) as invoicing currency.

The whole review certainly deserves your strong attention.